If Prime Minister Narendra Modi has his way, we would be filing our tax returns for the period January to December. Yes, the 150-year-old practice of following the April to March fiscal year could soon be done away with. If the proposal sees the light of the day, the budget will also coincide with the calendar year.
On the face of it, there appears to be little logic for changing the time frame. However there is more to it than meets the eye. First and foremost the change to a calendar year fiscal will enable better allocation to the farm sector.
India is largely an agrarian economy and depends considerably on the monsoons. The success or otherwise of the monsoons is revealed during the period June through September of a given year. Adjustments in the subsequent budgets can thus be immediately made.
A committee constituted by Niti Aayog suggested that by the end of the monsoons, the output of the kharif crop is known and rabi crop is estimated. The presentation of the budget in November, to be implemented in January of the subsequent year is thus ideal.
India has been following the April to March fiscal year since 1867. The practice was adopted to align the Indian fiscal year with the British fiscal year. 156 nations across the globe as well as the IMF and World Bank follow the calendar year as the fiscal year. Migration to the calendar year would align the Indian system with the rest of the world.
Among other aspects of readiness, the proposed migration to calendar fiscal year may get delayed as the GST roll out is also round the corner.